​Russia increases gold purchases by 123%

The Central Bank of Russia bought a record amount of gold in the first 11 months of 2014 spending an estimated $6.1 billion. Increasing gold reserves attempts to reduce dependence on the dollar amid geopolitical tension, Mark O’Byrne of GoldCore, told RT.

Russia’s gold purchases
accounted for a third of the world’s total of 461 tons, according
to research by Thomson Reuters GFMS (Gold Fields Mineral
Services). The amount of gold bought went up 123 percent from the
previous year to 152 tons, worth $6.1 billion at current prices.
It’s the most Russia has spent since the collapse of the Soviet
Union.

Given the tension between the US and Russia, it’s more likely
Russia will sell dollar assets and buy gold, said O’Byrne.

“That will be done both to protect the ruble and potentially
to position the ruble as a reserve currency in the long-term, but
also as a signal to Washington,” he said, adding that it’s
almost like a geopolitical move showing that Russia has a
monetary and financial alternative and it can retaliate if
economic sanctions were to deepen.

On Thursday EU foreign ministers decided to prolong sanctions
against Russian officials and the militias in eastern Ukraine
until September 2015, but decided against broadening the list of
economic restrictions. A final decision is expected in February.

“Increasing the share of gold in foreign exchange reserves is
not a short-term speculation, it’s a long-term
diversification,” O’Byrne said.

Analysts from GFMS partially attribute the increase in Russian
gold purchases to the buying of the metal from domestic
production that increased 9 percent year-on-year. At the same
time, it won’t be easy to sell these volumes overseas due to
sanctions, they say.

“This is a clear positive for the gold price,” said
Matthew Turner, analyst at Macquarie, as quoted by the FT.
“If central banks had not purchased that gold it would have
been bought by private investors or jewelry consumers, and this
would likely have required a lower gold price.”

The current spot price for gold is $1,263 per ounce which is
below the recent five-month record of $1,300.

The research forecasts that soon Russia may slow global gold
purchase rates and enter the sales market to sell its reserves in
order to support the national currency.

During the crisis of 1998, Russia had to sell 118 tons of gold
reserves to cover fiscal deficits. At the same time, the current
situation is not as dramatic as Russian foreign exchange reserves
are valued at $378.1 billion.

“We are still a long way off Russia needing to sell
gold,” said Turner.

Russia was the second biggest gold producer in 2014.Last year it
extracted 272 tons of gold, outstripped by China with 465.7 tons,
and just ahead of Australia producing 269.7 tons.